OVERVIEW

US inflation data and local SONA were the events of the week, each event resulted in a temporary market surge in opposite directions on USDZAR.
US inflation caused panic for investors and reactions were mixed on the State of the Nation Address from our President.
Inflation is becoming a dilemma to Central Banks as they contemplate hiking rates to offset record inflation figures.

“The Fed isn’t in the mode of emergency rate hikes” – St. Louis Fed President James Bullard.
Yesterday’s US CPI data revealed a higher than expected result for the January 2022 inflation, the 40-year high of 7.50% was 0.20% higher than anticipated.
Though not a huge difference, the stat caused panic with several news bulletin announcing extra emergency rate hikes for the year and then a confirmation by the US Fed that emergency increases are not on the table and that figures wont push them to act out of current plans.

“We all know that government does not create jobs. Business creates jobs.” – President Cyril Ramaphosa.
The rand dipped to lows on USD/ZAR of R14.98/$ hours before SONA, by the end of the speech the pair had returned to R15.20/$.
The address saw President Ramaphosa touch on several points from infrastructure spending, unemployment, our electricity crisis, covid and formalizing cannabis.
The reactions were mixed from different industries and political parties, with most feeling the speech was too similar to 2021’s promises made.

What to expect next week:
In terms of rates, today’s close will give a good indication if importers will see better rates next week. If this pans out then better buying rates may be on the cards and considerations should be made to take out FEC’s.

Technically:
USDZAR has trended down this week with pricing in of US inflation predominantly working in the rand’s favour. We have broken below R15.30/$ and if we close around current levels of R15.15/$ then we can expect to test R15.05/$ and possibly break down to R14.90’s.
If the rally of risk appetite runs out then we may retrace back to R15.40/$ as a higher range next week.

Market sentiment is also pricing in expected aggressive talks from the ECB next month. It seems that various currencies are acting on expectations before they occur and pricing in rumours for March central bank talks.

This week markets felt that because the ECB put the possibility of a rate hike on the table, that the policy makers were in “panic”.
ECB is seen as the “guardians of stability and financial markets” and this change in policy mood is making Central Bank watchers feel uneasy.
Next weeks EUR GDP figures will be watched and if numbers are better than expected it may give the euro a boost.

Technically:
The EUR/ZAR sustains its break lower, then moving below R17.20/€ is a strong possibility. Should this occur then R17.10/€ lows may be possible, however this impulsive move hasn’t concreted its strength and this move down may prove to be a temporary jolt on EUR/ZAR. If so, a correction back up to R17.45/€ is likely.

UK GDP this morning showed that gross domestic product grew by .1% on a year-to-year basis, furthermore manufacturing stats showed a 0.2% form last month – positive stats showing an improving economy which may increase risk appetite for the rand.

Market players are now banking on a 30% chance that the BoE will hike their rate by 50 basis points next month – this sentiment is holding the pound steady against the majors.

Technically:
GBP/ZAR is retouching lows last seen on Jan 24th last month, it failed to break lower then and may find resistance again. If the pair does break lower then we can possibly see R20.30/£ which was last hit in November.
Clients are urged to take advantage of current levels given that we were over R21/£ on Tuesday. Next week, GBP/ZAR may range between R20.28/£ to R20.68/£.

Technical levels to watch next week: